Subscribe to the Ledger

About the author

James Pethokoukis is a columnist and blogger at the American Enterprise Institute. Previously, he was the Washington columnist for Reuters Breakingviews, the opinion and commentary wing of Thomson Reuters.

In his inaugural address, President Obama made the case for a more active and intrusive government. As my pal Bob Stein of First Trust Advisors tweeted: “Obama’s 2nd Inaugural Address was, in its essence, a rebuttal to Reagan’s 1st, 32 years later.” (That was the address when President Reagan said “government is not the solution to our problem;government is the problem.”)

So it was a fascinating coincidence to see this research note this morning from GS Washington Research Group on new mortgage lending rules from the Obama administration:

The [Consumer Financial Protection Bureau] has released more than 3,000 pages of rules this month related to mortgage lending.

We believe this will create a compliance nightmare which will force banks to be more cautious when originating purchase mortgages. This further fuels our worry that purchase mortgage conditions will remain excessively tight in 2013, which is negative for mortgage lenders, home builders, mortgage insurers and others with exposure to the housing market.

More Details

The new mortgage rules just keep coming. In January alone, the CFPB has finalized:

· an 804-page Qualified Mortgage rule,

· a 753-page mortgage servicing rule,

· a 311-page high-cost mortgage appraisal rule,

· a 125-page appraisal disclosure rule,

· a 431-page high-cost mortgage counseling rule,

· a 116-page escrow rule, and

· a 541-page rule against steering borrowers to higher cost loans.

It also issued a 185-page proposal to provide small banks a partial exemption from some QM provisions.

That is 3,081 pages on final rules – or 3,266 pages if you include the proposal – related to mortgage lending. Violations of these rules results in penalties varying from monetary damages, to the return of all interest and fees paid on the loan, to enforcement actions, to losing the ability to foreclose on a delinquent borrower.

We see this regulatory flood – which Congress required as part of Dodd-Frank – as impeding credit availability.

This is government in action. It’s messy, costly and it produces loads of unintended consequences — all the stuff of which Obama seems only dimly aware.

Discussion: (2 comments)

Greenspan in 2008 on the mortgage crisis: “Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief.”

Translation: Mortgage bankers did it to themselves, and to us and to our children.

Not to worry about mortgage availability. As long as the Fed is buying MBS issues in lieu of the investors the banks burned, lenders will have plenty of time to study the rules.